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Chapter 11 Public goods and common resources

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Keith Diaz Chapter 11: Public goods and common resources  We consume many goods without paying: parks, national defense, clean air & water.  When goods are free, the private market may fail to provide the socially efficient quantity  One of the Ten Principles from Chapter 1: Governments can sometimes improve market outcomes.  Excludable: when a person can be prevented from using the good (fish tacos vs. radio signals); you cannot have any unless you buy it (only some people can use it)  A good is rival in consumption if one person’s use of it diminishes others’ use  Private goods are excludable and rival in consumption  markets work best for these goods Public goods  Not a rival in consumption: you using it does not affect others’ use of it  Non-excludable; something of value has no price attached to it - Private decisions about consumption & production can lead to inefficiency. - Role of government: Public policy can raise economic well-being.  Difficult for private markets to provide because of the free-rider problem - person who benefits from a good but avoids paying for it usually with non-excludable goods - firms cannot prevent non-payers from consuming the good  positive externality - Result: not produced, even if buyers collectively value the good more than cost of providing it - Role of government: if benefit>cost, government should provide it and pay for it with a tax on those who benefit  but measuring the benefit is usually difficult  Cost-benefit analysis: study that compares costs and benefits of providing a public good  imprecise, so the efficient provision of public goods is more difficult than that of private goods Common Resources  Non-excludable - Cannot prevent free riders from using it - Little incentive for firms to provide it - Role of government is to see that these resources are provided  Problem: rival in consumption  each person’s use reduces other’s ability to use - Role of government: ensuring they are not overused  Important common resources 1. Clean air and water 2. Congested roads 3. F
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